Xero Users to enrol in STP (Phase 2) by 31 March

If you employ staff or have contractors you pay superannuation for you need to ensure you’re set up for Single Touch Payroll (STP) Phase 2.

If you’re using Xero for payroll you have until 31 March 2023 to start reporting under phase 2.

What’s changing?

Phase 2 will see more granular information submitted to the ATO each time you file a pay run.

Submits Tax File Number and employment details to ATO via STP reporting, rather than as a separate process.
Breaking down income into components
Breaks down all allowances into separate items to gross income
Separates bonuses and commissions.
Specify reason for termination when employment ends, this will remove the need for employment separation certificates

What you need to do

You’ve likely seen pop-ups every time you go into the payroll screen in xero regarding STP 2. Now is the time to take action and work through the three steps to prepare and activate STP2.

Update Employee Records
Employment type: select ‘individual’ or ‘contractor’ for each employee
Income Type: how is the individual paid (most will be ‘salary and wages’)
Employment Basis: are they full-time, part-time, or casual.
Tax Scale: most will be ‘regular’

Most of this information will pre-fill from your current set up.

Replace Earnings Pay Items
You need to ensure that each pay item is linked to an ‘Earnings Category’. Xero will pre-match most, but there may be some you need to manually update or that you need to over-ride. The Reporting Categories are:

Ordinary Time Earnings
Allowances
Bonuses and Commissions
Directors Fees
Paid Parental Leave
Overtime
Lump Sum W
Workers’ Compensation

If you pay aggregated allowances (i.e., you include allowances in hourly rates) these need to be disaggregated so that the allowance is reported separate to ordinary earnings.

Update Leave Pay Items
Similar to what you’ve done with earnings, you also need to link Leave to a relevant STP2 Leave Category.

Enrol in STP2
Once you’ve done the previous 3 steps you can then enrol and start reporting STP2. This step needs to be actioned by 31 March 2023.

More information

For detailed steps to follow and more information on Income Types, Reporting Categories, Leave Categories and Pay Item Compatibility please refer to Xero’s ‘Move to Single Touch Payroll Phase 2’ Guide.

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